Trade Setups in EUR/USD, GBP/USD, AUD/USD Ahead of FOMC Meeting
- AUDUSD nearing 7-week range high - next stop 0.9150?
The US Dollar faces paramount event risk today in the form of the October FOMC meeting. This iteration of the policy update may prove hurtful to the US Dollar, as a recently more dovish Fed has emphasized the risks a strong currency poses to their inflation mandate.
Since the September FOMC minutes were released, Fed President James Bullard has even come out and said that further QE might be possible down the road. That has changed the perception of today's event: the official announcement that QE3 will be wound down to $0. If more QE is possible in the future, and rates will remain low for a considerable period of time, then risk sentiment shouldn't be so negatively impacted.
The one comment from the September FOMC minutes stands out: "...that domestic inflation might be held down by persistent disinflation among U.S. trading partners and further appreciation of the dollar."
We can recognize that the Fed is doing well to achieve half of its mandate - maximum employment - yet the inflation target remains difficult to achieve. Here, the Fed has made clear that the US Dollar's recent bull run may be to blame.
A dovish FOMC could have a profound impact thanks to where traders currently stand: notional USD long positioning among speculators is at its second highest level of all-time, per the CFTC's most recent COT report.
--- Written by Christopher Vecchio, Currency Strategist
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